Employer-paid income-tax forms part of salary for valuing rent-free accommodation under an inclusive salary definition.

Employer-paid income-tax was treated as part of an employee's salary for valuing rent-free residential accommodation under rule 24A of the Indian Income-tax Rules, 1922. The rule used an inclusive definition of salary, extending to pay and allowances, and the statutory scheme treated tax discharged by the employer as remuneration received by the employee in money's worth. The amount was therefore includible in salary for the valuation computation, even if it could also be described as a perquisite, and the reference was answered against the assessee.

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Issues: Whether income-tax paid by the employer formed part of the assessee's salary for computing the value of rent-free residential accommodation under rule 24A of the Indian Income-tax Rules, 1922.

Analysis: Rule 24A prescribed the valuation of rent-free accommodation with reference to the assessee's salary, and its definition of salary was inclusive, extending to pay and allowances. The statutory scheme under section 7 and the deduction provisions indicated that tax paid by the employer in respect of the employee's salary represented an amount received by the employee in money's worth, because the contractual salary was effectively borne free of tax. The amount so paid on behalf of the employee was therefore treated as part of the remuneration received by him and not excluded merely because it could also be described as a perquisite.

Conclusion: The employer-paid income-tax was includible in the assessee's salary for the purpose of valuing the rent-free accommodation, and the answer to the referred question was in the affirmative against the assessee.

Ratio Decidendi: Where the governing valuation rule adopts an inclusive definition of salary, tax paid by the employer in discharge of the employee's salary obligation constitutes part of the employee's remuneration and must be included in salary for that computation.

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